February 23, 2009

Future of WTO (Daniel Abebe)

Anu's
very helpful post presents the WTO's challenges quite clearly: how can the WTO in its current form function effectively in
light of the rise of new economic powers? While this post agrees with
Anu's analysis, it tentatively locates the problem not only in the failure to modify the
WTO's institutional rules to the current distribution of economic power but
also in the variation in economic development of the emerging states and the
size of their economies. Anu mentioned the
fact that there are “too many trade powers with too divergent preferences”
complicating the WTO’s efficacy. This is
correct and also produces a puzzle. If
we assume that the great powers are “great,” in part, because of the size and
development their economies, why should we see tremendous variation in
preferences among these similar great powers on trade issues? A realist story would predict that the great
powers would collude and coerce the developing countries and, if unsuccessful
in economic coercion, they would perhaps exercise military coercion as well. As Anu described, this is not working in
today’s WTO. It leads me to ask the following
questions: First, how does the increase
in the importance of international trade in the post-Cold War affect great
power competition? Second, how should we see this competition reflected
in international institutions like the WTO?

What does international relations theory tell us about these questions?
Historically, due to the dominance of realist thought the distribution of power
has been measured in material terms, i.e., the combination of military resources
and economic wealth. Throughout the twentieth century, this has produced
crude measurements of the "power" of the United States and its allies
(NATO/the European Union) and the capabilities of the Soviet Union and its satellite
states. Realism has led to predictions about the difficulties of
cooperation among states, the irrelevance of domestic politics and the epiphenomenal
nature of international institutions and international law.

However, with the end of the Cold War, the relative importance of realist
concepts of security, survival and military power began to decline; the great
powers all had nuclear arsenals, democracy was increasingly the preferred from
of governance and globalization brought states together. Around the same
time, the WTO came into existence and international trade, not naked security
competition, became the prominent issue for some states in international
politics. Perhaps controversially, the returns to power in the military
sense have diminished while the returns to power on in the economic sense have
increased.

In past years, the great powers were more similar than different. They
were based in the Western world, linked by a common heritage, shared similar
interests and, perhaps most importantly, had a common existential threat in the
Soviet Union (or had strong security relationships in the case of Japan).
Of course, there were differences among great powers at times but the United
States, Great Britain, France, Germany, Japan were all developed nations with
advanced economies and a large portion of the world’s GDP. In other
words, there was a greater confluence of interests on key trade issues across
these great powers relative to the great powers of today (US, EU, Japan, China,
India, Russia, etc).

Among the great powers of today, there is much more variation in their internal
economic characteristics and governance structures. China is not a
democracy and Russia is an immature one. China and India are, in many respects,
developing nations with large economies today and the potential for enormous economies
in the future due to their large populations. They also have potential
allies in other developing countries in a way that the advanced Western great
powers of yesteryear might not. Moreover, India has gained in strategic importance
for the US such that its capacity to influence the U.S. is greater than
what might appear at first glance.

This leads to the view that the US and EU will have problems with China, Russia
and India, among others because the collective interests of the great powers
are at a variance because of their levels of economic development and the size
of their economies. So what does this mean for the WTO?

First, we should see great power competition to be increasingly focused on
trade issues and, given the tentative claims here, we should see increasing
gridlock in the WTO.

Second, for the US and EU, changing the rules to reflect the current
distribution of power might mean sublimating their collective interests to China,
India, Russia and their allies among the developing countries, making it less
likely that modifying rules, by itself, can address the broader structural problems.

Third, it suggests that the extant version of the WTO—the single undertaking in
1994/95 before China and India had fully emerged-- might be a high-water mark
for US/EU-controlled free trade until the economies of the relevant great
powers begin to look alike, making compromise on salient trade issues less
costly and more plausible.

The implication is that the WTO will be a venue for great power competition and
struggle to generate compromises on trade issues and that changing the institutional
rules is unlikely to address the underlying structural problem or variation in internal
characteristics among the great powers.